Gross mortgage lending is on track to reach its highest level since 2007 this year, according to forecasts by the Intermediary Mortgage Lenders Association.

The trade body predicts that lending will hit £285bn, up from £243bn last year and from £268bn in 2019.

Imla has also revised its forecast for gross lending in 2022, reducing it slightly from £286bn to £280bn to take account of the number of transactions that have been brought forward because of the stamp duty holiday.

In January, Imla’s New Normal report predicted a rise in gross mortgage lending to £283bn in 2021, with a swift return to household spending as Covid-19 lockdown restrictions were eased. 

However, Imla’s latest report has increased the prediction in light of the strength of the housing market over recent months. 

It says that during the first five months of 2021, lending for house purchase was not only 87% above the same period the previous year, but 51% above the same period in 2019. 

Remortgage activity has been weaker, but the number of product transfers has risen to record levels.

Imla forecasts that house prices will be broadly flat in the second half of 2021 as the stamp duty holiday ends, but will rise 1.6% in 2022. 

It expects housing turnover to remain buoyant in Q2 and Q3, with an additional 120,000 property transactions. 

There was a modest increase in arrears of over three months, from a low of 0.72% of all loans in Q4 2019 to 0.85% in Q1 2021. 

But Imla says that as there are now fewer than 30,000 borrowers on a mortgage deferral it is unlikely that arrears will rise much more, particularly given the strong performance of the jobs market.

There has been an increase in buy-to-let lending which has been driven by purchases, mirroring the owner-occupied market.

Imla now expects 2021 to be the strongest year for buy-to-let since 2016, with £13bn of purchase lending. 

Intermediary Mortgage Lenders’ Association executive director Kate Davies says: “Following a difficult period in the wake of the coronavirus crisis, it is very encouraging to see yet another positive prediction for the remainder of 2021. 

“Our findings forecast that 2021 will see the highest level of mortgage lending since 2007 and, with a combination of government support helping to underpin new purchases and a bumper year for product maturities, we expect this high demand to continue. 

“However, with the stamp duty holiday soon coming to an end, and the Help to Buy scheme due to conclude in 2023, there is still a need for a coherent, long-term housing strategy from the government that embraces the public as well as the private sectors – and delivers a market that meets Britain’s housing needs for the decades to come.”